PNG government debates proposed increase to log export tax

Papua New Guinea’s Department of Treasury has proposed a sharp increase to the log export tax, which – if implemented – would devastate PNG’s forest industries.

Currently, all log exports are taxed at 28.5% of “free on board” (FOB) value. The proposed regime would see this flat rate replaced by a progressive tax based on the FOB value of the timber. Under the proposed new regime, a shipment of PNG logs sold at the 2015 average FOB price of US$98 per m3 would attract export tax of more than 43%.

The PNG Forest Industries Association advises that logging operations in PNG already operate on razor-thin margins, and many currently run at a loss. Operators can temporary weather periods where projects fail to generate profits – forestry is a long-term game – but the proposed tax increases would force most of them to cut their losses and shut down operations. The remaining projects would continue in the short-term, in order to honour sales contracts, but would also largely be forced out of business soon after.

Loss of these operations would have a devastating effect on many communities in PNG, and on the national economy. Forestry employs more than 15,000 Papua New Guineans, and generates support jobs for another 25,000. Landowners receive K70 million in royalties and at least K67 million in development levies each year. The government receives revenue worth K260 million per year from taxes paid on exports of logs, as well as company tax totalling over K37 million. Crucially, exports of logs from PNG bring in more than US$250 million in foreign exchange earnings per year; currency that is currently in very short supply.

All of these benefits are at risk if the government adopts the proposed tax increases.

In response to PNGFIA submission, the government is reviewing these proposed changes and is due to announce the revised tax rates in late January 2017.